The stock market was deregulated 25 years ago today, reprising the City’s
golden age, but the 1980s boom is ultimately responsible for our current
bust.

The eurozone unravelling, the governor of the Bank of England announcing the most serious financial crisis since the 1930s, Tent City dug in next to St Paul’s – it is piquant timing for today’s 25th anniversary of the City of London’s Big Bang. Researching and writing the City’s history, I used to find potential readers confronted by a double barrier: the perception that the City was not just incomprehensible but also boring, reflecting, as that old Monty Python sketch had it, “the dull life of a City stockbroker”. The City probably remains baffling to most people, but since the crash of 2008 no one can deny its interest and importance.

Big Bang itself, on October 27, 1986, coincided with the coming of screen trading, but was essentially about deregulating the Stock Exchange. Above all, it enabled 100 per cent outside ownership of member firms – a move enforced by the Thatcher government on a largely reluctant City, so that London could operate on a modern, properly capitalised basis as an international financial centre.

For those with a historical perspective, undoubtedly including Margaret Thatcher’s chancellor, Nigel Lawson, the gleam in the eye was the hope of reprising the City’s golden age, when London was the greatest financial centre the world had ever seen, disbursing capital and credit around the globe, before the guns of August 1914 changed everything.

The arrival of the Euromarkets in the 1960s, followed by the floating of exchange rates and abolition of exchange controls, began the re-internationalisation of the City, but Big Bang took it much further: a legion of deep-pocketed commercial banks, often foreign, bought up long-established broking and jobbing firms such as James Capel, Phillips & Drew, Panmure Gordon and Wedd Durlacher, while simultaneously ambitious American investment banks such as Goldman Sachs beefed up their London presence and would rapidly supplant the British merchant banks, traditionally the City’s crème de la crème.

The gleam came to fruition. During the 1990s, neither Frankfurt nor Paris mounted a credible challenge to London as top European financial centre; by the new century, London was ahead of both New York and Tokyo in global terms; and for successive British governments, the City proved an almost miraculous (and relatively uncomplaining) cash cow, funding new hospitals and schools and much else besides. Yet, as all this went on, I would find myself wondering whether the new City that had emerged out of Big Bang was really so much better than the old City.

My answer was mixed, and remains mixed. I admire the energy and drive of the new City, in its human composition a far more diverse and meritocratic place than the old City, where for so long whom you knew counted rather than what you knew. But at the same time, the Americanisation of the City – above all, the dominant investment banking culture – has had some seriously corrosive and damaging effects.

Long-term relationship banking has been replaced by short-term transactional banking, often involving opportunistic financial engineering; the maximisation of profits, in pursuit of shareholder value, has meant an increasing reliance on intrinsically risky proprietary trading; and, for the traders, the annual lure of the seven-figure bonus has seen them systematically engaged in ludicrously one-way bets – one-way because they are not personally responsible for the losses (“other people’s money”), quite unlike the old City’s salutary partnership structure.

But of course, it was not just in the old City that the triumph of Thatcherism doomed a traditional ethos of loyalty, paternalism and the long, leisurely lunch. The City revolution of the 1980s was part of a wider revolution, which in its totality raised the fundamental philosophical dilemma for the Right that still remains unresolved: how to reconcile the instincts of conservatism (the past and present held in trust for the future, society seen as an organic whole imbued with reciprocal obligations) and those of free-market capitalism (unleashing nostalgia-free forces of creative destruction).

Near the end of John Campbell’s superb biography of Thatcher, he imagines what her father, Alderman Roberts of Grantham, might have made of the unrecognisable world that his daughter had brought into being, a world that is now, two decades on, appreciably more Thatcherite than when she was in her prime.

Nowhere is apparently more Thatcherite than the new City. Earlier this year The Daily Telegraph ran an illuminating interview with Mervyn King, who lamented modern trends in financial services: too much emphasis on making money out of customers, too little on giving them a genuine service, and the malign impact of casino trading. It was an arresting interview because of the almost unprecedented spectacle of the governor of the Bank of England so explicitly attacking City values (or lack of them).

How resonant is the King critique? Given all the anecdotal and other evidence about the deep unpopularity of the City since 2008 – when the banks had to be bailed out by the taxpayer, who got so little in return but instead had to watch new rounds of the City paying itself handsome bonuses – it is surely plausible that such a critique strikes a chord, perhaps especially with those middle-class, Conservative-voting people who until quite recently had thought little about the City and largely taken it for granted.

After all, a generation ago, the social and financial position of, say, a solicitor in Northampton was not so utterly different from, say, a stockbroker in Sevenoaks; but now, the City (including Canary Wharf) feels like an absurdly privileged offshore island, living in a bubble far removed from the everyday concerns of most people and sucking in many of the brightest and best.

Such a situation strikes me as neither desirable nor sustainable. In my view the City, if it wishes to stop being contra mundum, urgently needs to do several things: focus more whole-heartedly on the British economy (including the manufacturing sector), though without abandoning its international role; concentrate on useful, productive activities rather than trading for its own sake; seek to fulfil the maxim of Siegmund Warburg, the greatest figure of the post-war City, that the banker or comparable financial professional should be like a physician in relation to his client; recalibrate remuneration to sensible levels and (in the case of bonuses) a deferred basis; and more generally, abandon the masters-of-the-universe syndrome, make itself fully accountable to the political system, and stop ducking the challenge of full engagement with the media.

Are the City’s leaders capable of initiating and implementing a serious reform agenda? In the new meritocracy, most of them are so able and so intelligent that it would be comforting to think they grasp the irresistible logic. Their alternative is to stay in their large, self-contained silos and wait for the popular pressure to continue to build and the politicians eventually to act, probably crudely and with harmful unintended consequences.

Like the Duke of Wellington with the Reform Bill, like de Gaulle with Algeria, like Nixon with China, this is a time to see the bigger picture.

David Kynaston’s 'City of London: The History’, published by Chatto on November 3 (RRP £30) is available from Telegraph Books for £26 plus £1.25p p&p. To pre-order your copy please call 0844 871 1515 or go to books.telegraph.co.uk